EBITDA

What is ebitda?

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It strips out financing costs, tax situations, and non-cash accounting charges to approximate a company's core operating profitability. Investors use it to compare businesses on a more apples-to-apples basis, since it ignores how a company happens to be financed or structured for tax.

Formula

Worked example

Why it matters for fast-growing companies

EBITDA is a favorite proxy for cash-generating power and often the basis for valuations and acquisition multiples. But it isn't cash flow, it ignores real costs like capital spending, debt payments, and working capital swings. Treating EBITDA as if it were profit is a classic way founders overestimate how healthy a business really is.

Related terms

• Unit economicsNet incomeNet income is the bottom line, what's left after subtracting every expense from revenue, including COGS, operating expenses, interest, and taxes.
• Unit economicsGross profitGross profit is what's left from revenue after subtracting the direct cost of delivering your product or service (COGS).
• Accounting & closeOperating expenses (OpEx)Operating expenses are the costs of running your business that aren't tied directly to producing what you sell, salaries, rent, marketing, software, and admin.
• Unit economicsWorking capitalWorking capital is the cash tied up in day-to-day operations, current assets minus current liabilities.

Frequently asked questions